7 Ways to Start, and Stay on the Right Financial Track This Year
What are realistic ways to get on the right financial track this year?
There's a lot of temptation for people to start off life buying things that they don't need like expensive cars, larger homes, basically every gadget on the planet. I tell a lot of younger clients that it is really important to build the fundamentals into their budget before they move on to the luxury items that are sometimes very expensive.
Prioritizing what falls into the fundamentals bucket is critical. Obviously, items are food, reasonable shelter, transportation, medical care, insurance, and saving for the future. A basic financial plan can really help whether you do it yourself or get help from a professional.
Leaning on the advice of a financial representative can help create some accountability. In our society, we are expected to largely fund our own retirement through 401k and IRAs. Social Security helps, and is really important, but it was never designed to be all someone has. Most people never notice the adverse impact on their lifestyle if they start saving early. In other words, they oftentimes don't miss the money.
What are some unrealistic goals to make when I'm planning for the year?
Many people think they need to have a large amount of money to invest or save to even get started. That's simply not true. I have so many clients that over the years have put relatively small amounts per month or per year in IRAs or college savings, who are surprised when it adds up to be a nice amount of money 15 or 20 years later.
Often unrealistic goals involves setting retirement income goals. Later in life, they don't match what's been saved over the years. There isn’t magic when it comes to money. Either you have saved it or you didn't. The other thing that I hear a lot is that “I should have started earlier.” Well, that might be true, but I can't fix that, nobody can. All we can do is focus on moving things forward.
So what financial steps will make the biggest impact for someone starting now?
The first thing to look at is protecting against large, unexpected losses, maybe from a property loss, or a human loss. I've seen the effect of human loss in particular, when there was protection and when there was not, and the emotional loss is enormous, of course, and the financial loss can create situations that are tough to overcome.
If you have an employer-sponsored plan you should participate. Don't let the matching formula dictate how much you save either. Instead, calculate how much you're going to need to save to reach your retirement goals. It might be 4% of your income, it might be 15% of your income. That is where a little planning can be helpful
Having short term savings is also very critical. If you have a house, things are gonna break. You need to pay for if cars break and need replacement. When we're in our 20s, we're getting started. We can't imagine not working and we can't imagine retiring.
You need to think like a 60-year-old and pretend retirement is right around the corner. What we do early in our working life can have a huge effect on our long term security. Once you establish that habit of saving responsible money, it really becomes easy to maintain.
Why do people get off track with their financial goals?
People get off track because of two broad issues, things outside of their control, and things under their control like bad decisions. I've also seen situations in families where spouses are not on the same page. One might be a spender, one might be a saver, and that can create some real conflict and make it difficult to reach goals.
There are also job losses. We've seen so much of that this year and that can have a huge effect on reaching goals. Access to 401k plans disappears, removing the loss of ability to save money for retirement. Withdrawing money from retirement accounts is sometimes necessary when there's a job loss to put food on the table, but is very damaging for those future retirement savings.
So how can I make sure that I stick to my financial goals?
You really need to create that long-term vision for yourself and your family. Decide what you want to do and how you want to get there. The biggest savings goals seem to be college and retirement. If spouses are on the same page, that makes it much easier.
There's still a balance between the money needed and wanted for life now, and money that needs to be saved for later. I'm a firm believer that life should be enjoyed now with the understanding that we are going to need money later when we're done working.
Periodically review your plan. Just see if you're still on track. You can imagine it's very easy to get off track without a plan. So keeping it up to date is really important.
Mark is an investment advisor representative and registered representative of and offers securities and investment advisory services through Voya Financial Advisors Inc. member SIPC. Ibis Financial is not a subsidiary of nor controlled by Voya Financial Advisors Inc. Voyage Federal Credit Union is not affiliated with Voya Financial Advisors and investments are not NCUA insured, not a deposit of a credit union may lose value, not credit union guaranteed not insured by any federal government agency.
Let us help you get your finances on the right track. If you haven’t created a savings plan or need help updating your current plan, we’re here for you. Contact Mark Ibis online, or give us a call at 605.338.2533.
